Correlation Between Collins and Far Eastern

Can any of the company-specific risk be diversified away by investing in both Collins and Far Eastern at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Collins and Far Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Collins Co and Far Eastern Department, you can compare the effects of market volatilities on Collins and Far Eastern and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Collins with a short position of Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Collins and Far Eastern.

Diversification Opportunities for Collins and Far Eastern

0.77

Correlation Coefficient

Collins  Far Eastern

Poor diversification

The 3 months correlation between Collins and Far is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Collins Co and Far Eastern Department in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern Department and Collins is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Collins Co are associated (or correlated) with Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern Department has no effect on the direction of Collins i.e., Collins and Far Eastern go up and down completely randomly.

Pair Corralation between Collins and Far Eastern

Assuming the 90 days trading horizon Collins Co is expected to generate 0.95 times more return on investment than Far Eastern. However, Collins Co is 1.05 times less risky than Far Eastern. It trades about 0.0 of its potential returns per unit of risk. Far Eastern Department is currently generating about -0.23 per unit of risk. If you would invest  1,795  in Collins Co on September 5, 2024 and sell it today you would earn a total of  0.00  from holding Collins Co or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Collins Co  vs.  Far Eastern Department

Collins

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collins Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Collins is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Far Eastern Department

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far Eastern Department has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Collins and Far Eastern

The main advantage of trading using opposite Collins and Far Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Collins position performs unexpectedly, Far Eastern can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Far Eastern will offset losses from the drop in Far Eastern's long position.

The idea behind Collins Co and Far Eastern Department pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Transaction History module to view history of all your transactions and understand their impact on performance.